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P R O F E S S I O N A L S E R V I C E S

HOW BUYERS BUY

R E S E A R C H S U M M A R Y

Lee W. Frederiksen, Ph.D.

Study Director


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2009 Hinge

TABLE OF CONTENTS

03

04

06

12

15

18

20

22

/ At a Glance

/ Introuction

/ Selecting a Firm

/ Epaning the Relationship

/ Willingness to Refer

/ Reasons Clients Leave

/ Special Section: Rethining Client Segmentatio

/ About the Author / About Hinge


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Interviewe 137 buyers of professional services

53% government buyers, 47% private sector buyers

Services purchase inclue:

Architecture, Engineering an Construction>

Technology>

Management Consulting>

Accounting & Finance>

Topics inclue:

Firm selection process>

Competitive mareting approaches>Epaning the relationship>

Referrals>

Reasons clients leave>

A special section on strategic analysis of client

segments is inclue

AT AGLANCE


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What o buyers of professional services rms really want?

How o they mae ecisions? Whats the best way to epan

the professional relationship an garner referrals?

These are some of the questions that professional services

rm owners an eecutives struggle with every ay. The

purpose of this research is to provie some practical answers.

In this stuy, we wante to unerstan the ynamics

of the ecision-maing process throughout the life of

an engagement.

Rather than as a large number of buyers a series of

relatively supercial questions, we conucte in-epth

one-on-one interviews with a carefully targete group

of buyers. Instea of asing buyers about rm selection

in general, we crafte our questions to reveal the etails

of the selection process an how buyers wor with a rmover time.

INTRODUCTION

In this stuy, we wante to unerstan the ynamics of the

ecision-maing process throughout the life of an engagement.


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METhODOLOGy

Professional service buyers were sample from two main

groups: government buyers an private buyers.

SAMPLE BREAkdOWN

We further segmente them epening on the type of

service purchase.

WHAT SERVICES WERE YOU BUYING?

Segments Percentage

Architectural / Engineering / Construction 38.7%

Management Consulting 37.2%

Information Technology 12.4%

Accounting & Finance 11.7%

We conucte a series of 137 comprehensive phone interviews

with the buyers covering a range of topics, incluing:

Firm selection process>

Competitive mareting approaches>

Maintaining an epaning the professional relationship>

Referrals>

Reasons clients leave>

Questions inclue both open-ene iscussion items anspecic rating scales. We ase responents to thin in terms

of a particular rm they ha selecte. This encourage more

specic responses.

In some cases we were able later to follow up with the

selecte rm an get a view of the relationship from the

professional services provier. In several instances this

yiele a valuable perspective on how buyers an sellers

of professional services see things ifferently.

Private

46.7%Government

53.3%


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REAChING ThE PROFESSIONAL SERVICES BUyER

Professional services rms use a variety of approaches to

connect with potential new customers.

CURRENT MARkETING APPROACHES ExPERIENCEd

BY BUYERS

Approac Percentage

Col calls 23.5%

Email 14.0%

Networing 14.0%

direct mail 11.2%

They ont maret 8.9%

Personal visits 8.4%

Conferences 7.3%

Follow our structure process 5.0%

Eisting relationships 2.2%

As in trae pubs 1.7%

All other approaches 4.1%

How o service rms maret to prospects? Col calls, at

23.5%, email an networing, at 14.0% each, top the list as

perceive by the buyers themselves. A surprising 8.9% of

buyers report that rms are not trying to maret to them.

SELECTING A FIRM


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Insight

Whos your competitor?

We asked a limited sample

of buyers to identify all the

competitors of their current

rm. We then asked the rm

to identify all their competitors.

Both the buyer and the rm

identied similar numbers of

competitors (typically 15-20).

When we compared the two lists,

there was less than 20% overlap.

KEy TAKEAWAy

Be careful. You may be

positioning your rm against

the wrong competitors.

When ase how to improve the way that professional

services rms maret to them, buyers painte a clear

picture. To paraphrase one of the responents, I ont

want to be sol to. Have a goo unerstaning of my

situation, then sit own with me an lay out a etaile

solution. Show me how its wore before. That sentiment

is reecte broaly in the results shown below.

HOW TO IMPROVE MARkETING

Approac Percentage

Personalize unerstaning

of my situation19.9%

No high pressure sales calls 13.5%

Share relevant case stuies 12.2%

Present etaile solution 10.9%

Meet with me personally 9.0%

Show that you want our business 6.4%


All other mareting 21.8%

The contrast is striing. Many professional services rms

are using phone calls, emails an the lie to offer services.

But buyers want a ialogue aroun solving their problems,

not another sales pitch.

IN THEIR OWN WORdS

I ont want to be sol to. Have a goo unerstaning of

my situation, then sit own with me an lay out a etailesolution. Show me how its wore before.


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SELECTION CRITERIA

Most professional services buyers start out with some

sense of what they are looing for in a rm. We ase

buyers to name their top 2-3 selection criteria whenevaluating rms.

We compile a list of over 30 ifferent criteria. To mae sense

of these ata we groupe the results into 11 focuse categories.

MOST MEANINGFUL SELECTION CRITERIA

Criteria Percentage

Epertise / technical sills 19.8%

The project team 18.1%

Firm eperience 14.9%

knowlege of my inustry / situation 12.5%

Reputation 11.1%

Firm size an reach 5.6%

Availability / eibility 5.6%

Personal relationship 4.5%

Price 4.2%

Firm management approach 3.1%

Firm resources 0.7%

We foun that Epertise/Technical Sills lea the selection

criteria, cite by almost 20% of buyers. Note that many of

the other frequently liste criteria relate to a rms ability

to complete the wor. By way of contrast, cost is ientie

as a top criterion by only 4.2% of buyers.


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PITFALLS TO AVOID

We also ase buyers what they trie to avoi whenselecting a professional services rm. This provie a

ifferent perspective on the buyers psychology.

The most frequently cite concern is that the service

provier will eliver poor results. Either the service rm

will fail to unerstan the problem or will lac the sills

an epertise necessary to overcome it.

WHAT WERE YOU TRYING TO AVOId?

Concern Percentage

Poor results 47.9%

Project team problems 38.7%

High fees / cost overrun 10.9%

Wrong size rm 9.2%

The net level of concern is with project team behavior.

They want to avoi troublesome behavior such as poor

communications, conict, rigiity or arrogance.

The focus then shifts to concerns regaring uncontrollecosts or hiring a rm that is the wrong size too small to

perform or too large to care.

Not surprisingly, these are many of the same reasons

buyers eventually re their rms. In the hiring process,

buyers are trying to avoi situations that have been

troublesome in the past.

IN THEIR OWN WORdS

If I get any whiff of arrogance, Im just not going to hire them.


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TIPPING ThE SCALE

Another way to unerstan the ecision-maing process is

to focus on the factors that actually tip the scale in favor

of a specic rm. To perform this analysis, we compare

buyers responses to what tippe the scale against the

original selection criteria. What we learne was that most

criteria became less important in the nal selection than

their original raning woul inicate.

In fact, only four criteria too on greater signicance

as the selection process unfole. These criteria are

Price, Availability/Fleibility of the rm, Senior-level

Commitment/Consistency (are the people who sol the job

available to o the actual wor?) an disappointment with

other rms uner consieration.

WHAT TIPPEd THE SCALE?

Price

Availability / eibility

Senior-level commitment / consistency

disappointment with alternatives

Insight

Why does price so frequently

tip the scale?

Does the old stereotype,

buyers are liars, hold true

and buyers underplay the

importance of price when

identifying important selection

criteria? That may be true in

some cases, but it is at least as

likely that professional services

rms are failing to differentiate

themselves. When competing

rms are perceived as equivalent,

a buyer will usually pick theleast expensive option.

KEy TAKE AWAy

Make sure you know how to

differentiate your rm or you will

be forced to compete on price.

IN THEIR OWN WORdS

The people who pitche the business were the same people

who woul be oing the wor. That was ey for us.


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WhAT DO BUyERS REALLy WANT?

After a careful analysis of buyers responses, we conclue

that buyers want professional services rms to provie

answers to just three funamental questions:

1 / Can ou x m problem?

The bul of a buyers selection criteria an process

is aime at etermining whether a prospective rm

can solve their problem. do they unerstan my

issues? Have they solve similar problems in the

past? does the specic team have the necessary

sills an eperience? This is the threshol issue.

If a rm cant convince the buyer that it can solve

the problem, that rm will not be selecte.

2 / Will ou make m life easier?

Once the threshol of basic qualications has been

crosse, the focus shifts. Will you mae my life easier

or more ifcult? At this point cost, availability,

eibility an customer service come into play. If

two or more rms are perceive as being equally

capable of solving the problem, the choice then

hinges on these secon-level consierations.

3 / Do I enjo ou as a person?

Before a nal ecision is mae, criteria relate to

the quality of the personal relationship become

important. do I lie this person? Will I enjoy woring

with them? If the rst two levels are reasonably

comparable, the selection will be mae on personal

relationships or rapport. These relationships, while

important, are never a substitute for the ability toget the job one.

IN THEIR OWN WORdS

They listen an unerstan how we operate... have built a

relationship of trust.


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AWARENESS OF SERVICES OFFERED

do your clients unerstan the range of services you offer?

When we ase buyers whether they were aware of the

services offere by their current rm, a large majority of

buyers (63.7%) sai they were not.

AWARE OF SERVICES OFFEREd BY CURRENT FIRM

INTEREST IN ADDITIONAL SERVICES

We then ase buyers if they ha an interest in any new

services from their current rm or a competitor. More than

two out of three responents (68.0%) were intereste in

one or more new services.

dESIREd SERVICES FROM ExISTING FIRM

EXPANDING ThE

RELATIONShIP

Yes

36.3%

No

63.7%

None

32.0%

One or more

new services

68.0%


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To chec the relevance of this interest we contacte those

incumbent rms we coul ientify. We then presente them

with the list of esire services an ase them if their rm

currently offere these services. The results were striing.In over 85% of the cases, the service that the client wante

was alreay offere by their current rm but the client

int now it.

dESIREd SERVICES ALEAdY OFFEREd

Its easy to unerstan why a satise client might turn to

one of your competitors for a service you provie. In many

instances, they ont now better.

Not offered

14.6%

Already offered

85.4%


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IN THEIR OWN WORdS

Have a senior person sit own with me an iscuss my

business situation. If there is a way they can help me, maea recommenation.

OFFERING NEW SERVICES

When introucing new services, rms announce their

new offerings in newsletters, on their website, in press

releases or at trae shows. These are all legitimate ways

to communicate to your maretplace, but your clients

ont favor them. In fact, only about 20% of currentclients favore any of these moes of communication for

communicating aitional services.

OFFERING NEW SERVICES

Approac Percentage

Senior person maespersonal visit an

iscusses business situation an maes

recommenations

45.4%

Senior person maespersonal call an

iscusses business situation an maesrecommenations 15.9%

Senior person senspersonal email an

iscusses business situation an maesrecommenations

13.6%


All other maretinge.g., direct mail, newsletters, website,

trae show

20.4%

With very minor variations this sentiment was wiely

share: some buyers preferre to have this ialogue by

phone (15.9%) or email (13.6%) but the basic precept ofthe conversation was consistent across the vast majority

of responses.

Among government buyers, however, the response was a

bit ifferent. A small percentage (4.5%) of buyers wante

their proviers to follow a structure acquisition process

rather than engage in a iscussion of nees. Anecotally,

this pattern tene to be foun in buyers who were at a

relatively low level in their respective organizations.

Insight

Whos job is it to gure

out how your services can

help your clients?Well, if

you believe its your clients

responsibility to ask for the

services they need, you miss

a lot of opportunities. They

dont even know what you

do! How about your project

manager? Project managers

know the client, but they are

focused on delivering results;

when operational priorities

conflict with business

development, operations

always win.

KEy TAKE AWAyYou cant leave it to the

project manager. Be sure to

assign a senior person who

can focus on the clients

organization and identify

opportunities to help your

client achieve their objectives.


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Almost everyone recognizes the value of referral business.

It can a tremenous creibility an marely shorten

the business evelopment cycle. So how willing are clients

to mae referrals? As it turns out, most are quite willing.

MAkING A REFERRAL

Rating Percentage Alread Referred

9 10 66.9% 79.6%

7 8 24.2% 52.9%

6 or less 8.9% 0.0%

We assesse their willingness using a 0-10 probability-to-refer

scale base on the wor of Reichhel an others. 1 About

two thirs of buyers (66.9%) rate their willingness to refer

as a 9-10. These are the most liely to refer an almost 80% of

this group has alreay mae one or more referrals.

Another quarter of buyers rate their willingness to refer

a 7 or 8. Slightly over half of this group (52.9%) ha mae

a referral. The remaining 8.9% ha mae no referrals.

PERCENTAGE ALREAdY REFERREd

WILLINGNESS

TO REFER

Private

Buyers

80.8%

Government

Buyers

55.1%

1 The Ultimate Question, Fre Reichhel, Harvar Business School Press, 2006.


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IN THEIR OWN WORdS

It came up in casual conversation. A subcontractor of

ours neee help, so I mae the referral.

While the willingness to refer was quite consistent across

the various buyers groups, we learne that Government

buyers were less liely to have alreay mae a referral.

To unerstan why, it helps to loo at the circumstances

uner which professional services buyers mae referrals.

WHEN dO YOU REFER?

Circumstance Percentage

Reactive

Frien or colleaguease me

45.6%

Formal internal

request12.3%

Proactive

Came up in

conversation28.1%

I brought it up 12.3%

Topic at inustry event 1.8%

In almost 60% of the cases the referral is mae in response

to a request, either a formal internal request (12.3%) or an

informal request from a colleague (45.6%). In short, someone

ase for a recommenation. The remaining 42% of referrals

are more proactive, with the buyer either bringing it up or

offering it in a conversation or inustry event.

Insight

What is a reasonable

expectation for referrals

from a satised client?

In this sample, about 60%

of the referrals were made

within the last 6 months.

Another 12% were made

between 6-12 months ago.

The remaining 28% of

referrals were made at least

a year ago.

KEy TAKE AWAy

As a rule of thumb, you should

target two referrals a year

from each active source.


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PERCENTAGE PROACTIVE REFERRALS

Government buyers are somewhat less liely to mae a

proactive referral (32% vs. 50%). They are epecte to

be more impartial than their private sector peers. Fear

of showing a bias may eplain this ifference. This also

helps eplain the gap between the willingness to refer anactually maing a referral. More insights can be gleane

from analyzing the reasons buyers cite for not referring.

WHY NOT REFER?

Reason Percentage

No one ase me 68.9%

They havent performe 20.7%

Not allowe 6.9%

Too soon 3.4%

In about one in ve cases, a buyer opts not to refer

because the rm i not meet their epectations. In the

vast majority of cases (68.9%), however, no referral was

mae because no one has ase for one. While willing to

refer, they were not proactive. In only a small number of

cases (7%), buyers felt that they were prohibite from

maing referrals. These were all Government buyers,

which further eplains the referral rate iscrepancy.

Private

Buyers

50%

Government

Buyers

32%


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LOyALTy

We ase the responents to assess the probability that

they woul still be woring with the same rm in a 2-3 year

time frame. As with the referral question, responses were

ivie into three groups. The results show that just over60% believe they will be woring with their current rm

an about 13% are very unliely to. The remaining 25% are

poise to move in either irection.

LOYALTY OVER 23 YEARS

Rating Percentage

9 10 61.3%

7 8 25.2%

6 or less 13.4%

REASONS

CLIENTS LEAVE


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2009 Hinge

REASONS FOR STAyING OR LEAVING

The reasons buyers give for continuing the relationshipfall into three categories. Almost 70% state that their

professional services rm simply i what they sai

they woul. Almost one in ve goes on to escribe a

bon of trust that has evelope. The remaining 14% cite

contract length as an important factor in riving their

epectation of relationship length.

REASON FOR LOYALTY

Reason Percentage

W yES?

They elivere on

their promise 67.4%

Have become a

truste partner18.6%

Contract length 14.0%

W NO?

No ongoing nee /

en of contract60.0%

They i not

eliver40.0%

The reasons for leaving fall into two istinct categories.About 40% have a strong intention to leave because they

feel that the rm i not eliver on its promise. The other

60% are satise with the performance of the rm but

see the unerlying nee coming to an en or the en of

the contract term approaching an are uncertain that the

current rm will win a recompete. These are principally

Government buyers.

IN THEIR OWN WORdS

They communicate that the rm nows my business,

nows my problems, nows how to solve my problems.

Insight

Why do clients, who are

satised with your work,

go elsewhere?Most simply

dont understand all you can

do to help them. They are

responding to the problems

they recognize using the

resources they are aware of.

KEy TAKE AWAyIts your job to uncover new

ways in which you can help

them solve the challenges

they face. If you dont, you will

lose a valuable opportunity.


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Its easy to get caught up in the ay-to-ay challenge of

proviing high quality services to clients. In that quest,

your larger strategy can easily get lost. Heres a new way

to thin about client segmentation an eep a broaerstrategy in perspective. Thin about clients as falling into

four segments.

1 / Te happ Core

For most rms, this is the place to start. It is

relatively easy to ientify your current core clients.

They are the group that is most satise with your

service (ratings of 9-10 on Lielihoo of Referral)

an most loyal (ratings of 9-10 on probability of

still woring with you in 2-3 years). In this stuy,

this segment represente just over half of the

buyers. Our eperience also shows that this group

is most liely to be protable as well.

From a strategic point of view, these are the clients to

stuy an evaluate. If you unerstan who they are

an why they are such goo clients, you will be in a

better position to get aitional clients just lie them.

2 / Satised but Restless

This secon group of clients presents a major

opportunity. These clients are willing to recommen

you but o not epect to be woring with you over

time. They represent almost 16% of the sample.

As the stuy shows, they probably ont realize all

of the ways that you can help them. If you ont act,

they may hire your competitor to provie a service

that you are perfectly capable of offering.

From a strategic perspective they are prime targets

for an epane relationship. But you must tae the

initiative. Its not their job to gure out how you can

best help them. Thats your job. If you wait for them

to approach you, they will be gone.

SPECIAL SECTION

REThINKING CLIENTSEGMENTATION

50.7%

15.9%


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3 / Stuck in a Bad Relationsip

This thir category is relatively infrequent,

representing only 5.8% of clients. These are the

fols who are not happy with your services but are

liely to continue woring with you for some time.Typically this is riven by contractual relationships

or lac of goo alternatives.

From a strategic perspective they represent a fair

opportunity as they will be aroun long enough

for you to have a reasonable chance to turn

them aroun. However, if you simply tae them

for grante, you are liely to generate increasing

hostility an mounting problems.

4 / headed Out te Door

This fourth segment of clients represents over a

quarter of the sample (27.5%). They are both unhappywith your services an not liely to stay aroun for

long. Are they worth trying to save? Perhaps not. But

at a minimum, they are worth unerstaning.

What went wrong? Was there a breaown in your

process? Were they a poor t to begin with?

By unerstaning this group of clients an contrasting

them with your core clients you are liely to gain some

very actionable insight. In our eperience, its every

bit as valuable to unerstan who your offerings o

not wor for as it is to ientify your best clients. This

allows you to target new prospects more accurately

an to tailor your offerings more closely to the nees

of your best clients. That is the essence of goo

strategy.

5.8%

27.5%


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Hinge is a braning an mareting rm specializing inprofessional services companies. Heaquartere in Reston,

Virginia, they are locate at the heart of one of the nations

largest concentrations of professional services rms. Their

comprehensive offerings inclue research an strategy,

bran evelopment, awar-winning creative an mareting

outsourcing. Visit Hinges website for free eucational

resources an to learn more about their services.

[email protected]

703-391-8870

ABOUT LEE W. FREDERIKSEN, Ph.D.

Lee is Managing Partner of Strategy at Hinge, a premier

professional services braning an mareting rm. He

brings over 30 years of mareting eperience to our

clients. Lee is a former tenure professor of psychology

at Virginia Tech, author of numerous boos an articles,

an a successful entrepreneur. Hes starte an run three

high-growth companies, incluing an $80 million runaway

success. Lee has wore with many global brans, incluingAmerican Epress, Time Life, Capital One, monster.com

an Yahoo!

Lee W. Freerisen, Ph.d.

Managing Partner, Strategy

703-391-8870

[email protected]

ABOUT hINGE

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